Dealing with a VAT Inspection

Any business registered to pay VAT will have to deal with a VAT inspection at some point during the first three years of registration. However, late payers and payment defaulters will be visited more frequently. After the initial VAT inspection intermittent inspections are carried out. Any business registered for VAT will face regular inspections, therefore it is vital that you develop an efficient record keeping system as early as possible.

During a VAT inspection, Customs and Excise Officers will need to see business records and discuss how you can manage your VAT accounting system. You should therefore be prepared for the Officers to examine or discuss the following:

1. Your business premises
2. Business records and documentation
3. Be prepared to deal with any errors
4. Discuss any difficulties you are experiencing
5. Discuss your VAT inspection with your accountant

Dealing with a VAT Inspection - Things to do

1. Your business premises.

The VAT Officers will hold the inspection at your business premises as they will want to check that they are being used, are fit, for business use and they will want to understand how your business operates

2. Business records and documentation.

VAT inspections require you to supply a large number of business records and supporting documentation. You must ensure that documents such as those listed below are available for inspection:

• sales invoices
• purchase records (normally any tax invoices you receive from other business. These must show if VAT has be charged and the VAT number of the company supplying the goods or service.)
• any credit notes issued by your business reduce the amount of VAT you owe
• delivery notes
• import and export documentation
• annual accounts
• bank statements
• till receipts (if used)

VAT inspectors will also want to see any information relating to company cars and other business expenses. All VAT records, along with other business records, must be kept for six years.

3. Be prepared to deal with any errors.

If errors are found in your VAT accounting they can be corrected by making a voluntary disclosure to the local VAT office or the VAT account can be adjusted if the net value of errors is £2000 or less. If errors are identified you will be given a reasonable amount of time to put them right. You must comply with any agreement or you risk incurring penalties or being fined.

4. Discuss any difficulties you are experiencing.

VAT Officers are able to give advice on training or completing VAT returns, which may assist you in the future. Businesses should not wait until the next return or visit to put a VAT problem right.

5. Discuss your VAT inspection with your accountant.

A professional adviser such as an accountant will be able to give you advice on preparing for the visit and will help you to ensure that all of the necessary paperwork is collated.

Dealing with a VAT Inspection - Best Practice

• Your business should develop an efficient record keeping system as early as possible. VAT paperwork is extensive. However, much of this information is the same as that required when completing business accounts.
• If you are unhappy with the handling of the case by Customs and Excise an independent adjudicator can consider any ruling regarding penalties or VAT accounting errors. In the first instance any grievance should be raised with your local Customs and Excise Office.
• For small businesses joining a new Government scheme, which includes an optional flat rate scheme for businesses with a turnover less than £100,000 and additional business support can reduce the administrative burden of VAT. Your local Customs and Excise Office, or Business Link adviser, will be able to give you more details.
• Get independent financial and business advice about all aspects of VAT and your business, as mistakes can be costly. The Financial Services Association will be able to put you in touch with a local financial adviser, specialising in VAT and Business Link will have similar information, with particular reference to small businesses.

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